Enhancing Profitability through Strategic Pricing and Inventory Management

The assignment content discusses the ethical dilemmas faced by Dick Smith Holdings, a reputed organization in Australia. The directors and senior executives of the company faced numerous ethical dilemmas, including whether to disclose all relevant information, undertake appropriate checks for employee appointments, and provide security holders with relevant information about the organization. Additionally, they had to balance their own interests with those of the company and its staff. The collapse of Dick Smith Holdings and subsequent acquisition by Anchorage Capital Partners is also discussed. Overall, the assignment highlights the importance of ethical decision-making in corporate governance.

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Contents
1. Introduction-................................................................................................................................3
2. A brief summary of the ownership history of the Dick Smith brand-.........................................3
3. A critical evaluation of the valuation of DSH when DSH was acquired by Anchorage Capital
Partners and at its initial public offering (IPO)-..............................................................................4
4. An assessment of the ethical dilemmas facing two separate sets of people-...............................5
Anchorage Capital Partners in respect of the flotation of the business:......................................5
The directors and senior executives of Dick Smith Holdings in respect of statements made in
the 2014/15report and accounts:..................................................................................................6
5. Conclusion-..................................................................................................................................7
6. References-..................................................................................................................................9

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1. Introduction-
This assignment helps in developing an understanding about the ownership history of the Dick
Smith brand which is a retailer which deals in consumer electronics products in Australia and
New Zealand and has a reputed name in the market. In this assignment a critical evaluation of the
valuation of DSH when DSH was acquired by Anchorage Capital Partners and at its initial public
offering (IPO) is also undertaken. It is analyzed that the sales growth forecast is to decrease from
$1.3 billion to $1.2 billion when compared to the last financial year. In this assignment an
assessment of the ethical dilemmas facing two separate sets of people i.e. Anchorage Capital
Partners in respect of the flotation of the business and The directors and senior executives of
Dick Smith Holdings in respect of statements made in the 2014/15report and accounts (Asquith
and Weiss, 2016).
2. A brief summary of the ownership history of the Dick Smith brand-
Dick Smith Holdings Limited is a retailer which deals in consumer electronics products in
Australia and New Zealand and has a reputed name. The organization was founded in 1968 by
entrepreneur named as Dick Smith. He started the organization with single store of installation of
car radio in the city Sydney. Some part of it was purchased by Woolworths Limited in the year
1981. Woolworths took complete ownership of Dick Smith Holdings Limited in the year 1983
when it was having 20 stores. Woolworths make acquisition of Tandy in the year 2001 and most
of the stores of Tandy were rebrand as Dick Smith and in the end of the year 2005 they generated
sales of $1bn (Theconversation, 2017).
Dick Smith Holding was reputed organization and has a well known brand name in the country
Australia. But Woolworths has leaded the organization towards competitive pressures and thus
resulting in failed restructuring of the business by the Woolworths. Woolworths make
divestment in the business of Dick Smith Holdings and is finally acquired by Anchorage Capital
Partners (“Anchorage”) in the year November 2012 for $94m. Anchorage Capital Partners is an
organization which is Australian based private equity firm having around $450m funds. After
restructuring of 12 months Dick Smith Holdings get listed on the stock exchange by getting

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funds of $520m at a $2.20 per share price (SMH, 2017). This IPO of Dick Smith Holdings
helped Anchorage a return which was four times of its investment.
3. A critical evaluation of the valuation of DSH when DSH was acquired
by Anchorage Capital Partners and at its initial public offering (IPO)-
An announcement was made by Anchorage Capital Partners that it has entered in to a contract to
acquire hundred per cent share of Dick Smith Holdings. Dick Smith Holdings is a reputed
consumer electronics organization in Australia which was started in the year 1968 by the person
named Dick Smith and has become the part of the organization named Woolworths. Dick Smith
Holdings has 4500 employees and around 325 stores in Australia and New Zealand in the year
2012 when Anchorage Capital Partners made the announcement of acquisition of Dick Smith
Holdings. The transactions of Dick Smith Holdings were structured in order to support the sale
by the financial statements (Fresard, 2010). Financial statements of Dick Smith Holdings shows
no core debts to the organization and asset backing which was enough considerable in order to
justify the solvency of the business of Dick Smith Holdings (Duchin et. a., 2010).
At initial public offering of Dick Smith Holding, Dick Smith Holding was valued at $520.3
million, at a price of initial public offering of $2.20 which was more than increase of 400 per
cent in just a period of one year. This increase was mostly based upon the interpretation of the
investors on the forecast made by the organization that there will be $40 million net profit in the
financial year. In the previous financial year, Dick Smith Holdings reported a total profit of $6.7
million. In the first quarter, Dick Smith Holdings has attained profit of $6.1 million which can be
analyzed from the financial statements published by the organization (Hadlock and Pierce,
2010).
It is analyzed that the sales growth forecast is to decrease from $1.3 billion to $1.2 billion when
compared to the last financial year. From forecast of net profit of $40 million and total net profit
after tax margin is 3.9 per cent in the current financial accounting period. It can also be stated
that in the basis of further store openings and further reductions in operations will lead towards
increase in growth of the sales of the organization (Beyer et. al., 2010). The directors also stated

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that company is intending towards pay out approximately 60-70 per cent of the net profit. The
organization was also making an announcement of payment of dividend in October next year.
Dick smith 66.2 per cent shares were sold through the IPO with Anchorage holding amounting
47.3 million shares and the remaining shares will be hold by the existing shares. The market of
consumer electronics in the country has faced a huge pressure from the last years and thus leads
towards instability in the economic conditions of the retailers. This has also lead towards
decrease in sales and profit margins of the retailers. It is also analyzed that the sentiments of the
consumer has increased in the recent year which can show up a rise of 23 per cent when
compared to previous years (Bebchuk and Weisbach, 2010). It can be concluded that
management of the organization believes that increase in sentiments of consumer will drive a
more positive domestic and worldwide economic stability in Australia and New Zealand and this
will help the retailers to gradually improve their economical conditions.
4. An assessment of the ethical dilemmas facing two separate sets of
people-
Anchorage Capital Partners in respect of the flotation of the business:
Ethical dilemma faced by Anchorage Capital Partners in respect of the flotation of the business
is discussed in this part. Anchorage Capital Partners has defended their role in the collapse of
the Dick Smith and claimed that the organization has a sustainable business when it got floated
on the share market for millions of dollars in profit. The Anchorage Capital Partners faced
ethical dilemma over its role in collapse of Dick Smith Holdings. Ethical dilemma faced by
Anchorage Capital Partners on the comments made by it that the Dick Smith take too much for
their own investors and only few part is left for the new owners making the organization in
unsustainable (Berk et. al., 2013). The ethical dilemmas faced by Anchorage Capital Partners in
examine the recording profits in the financial year by Dick Smith.
Ethical dilemma faced by Anchorage Capital Partners on write down various leases and other
assets that has reduced future charges and boosted profits of the organization in a way that can
make inflation in the price in order to on sell the business. Ethical dilemma was also faced by
Anchorage when it faced the charges of absolute dishonesty and reduction in morality in selling

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the organization for an amount which was huge before it collapsed. Ethical dilemma was also
faced by Anchorage in the quick around time between selling and buying of the business
(Berenson et. al., 2012). Dick Smith Holdings has the balance of the purchase price which was
funded from cash generated and run down sales of the amounts which were in excess and the
stock was also moving very slowly.
Ethical dilemma was also faced by Anchorage in the benefit of previous accounting provisions,
falls in profit margin and when the company reports a combination of degrading the same store
sales and has also reduces gross margins in the trading activities. Anchorage Capital also faced
dilemma that if Dick Smith Holdings was not very successful in trading, and was not updating
their stock accordingly than how they declared dividends to their shareholders. Ethical dilemma
had also arisen that the turnaround has started around 18 month period after the flotation before
Dick Smith Holdings started borrowing. Ethical dilemma has also caused that if the
administration has determined an operating background and a momentum which can be
considered positive than why the results of Dick Smith Holdings got fluctuated (Huhtala et. al.,
2013). Dick Smith was allowed to carry its administration on its own than why it lead towards
collapse and this is also the reason for ethical dilemma.
Anchorage capital also faced dilemma in making changes in the business mix of the Dick Smith
holdings and tried to make a push in order to get higher margins in the sale of the products in
order to enhance the profitability. Ethical dilemmas was also faced by Anchorage capital when
more than 3000 employees were retrenched from the job in the Dick Smith Holdings and when
about 300 stores were closed in the country and also accountants were removed from their
positions in the organization. Ethical dilemma faced by Anchorage capital was that whether Dick
Smith Holdings will be able to survive or not in the market in a constructive manner (Muniesa
and Lenglet, 2013).
The directors and senior executives of Dick Smith Holdings in respect of
statements made in the 2014/15report and accounts:
There were many ethical dilemmas faced by the directors and senior executives of Dick Smith
Holdings in respect of 2014/15report and accounts. The directors and senior executives faced
ethical dilemmas in achievements of highest standards of corporate governance for the business.

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Dick Smith Holdings should disclose all the respective responsibilities and roles in the board
meetings and the manner in which management will evaluate the performance which was one of
the ethical dilemmas faced by the directors and senior executives (Boatright, 2013). Ethical
dilemma was also by the directors at the time of appointment of an employee by undertaking
appropriate checks and to provide security holders all the relevant information about the
organization for taking an appropriate action regarding election of director.
An ethical dilemma was faced by the senior executives on the implications of actions of directors
of the organization and that in safeguarding the interests of the company and its staff in advising
how the situation may be rectified. If the directors of the organization may be friendly and
understandable than the senior executives can advise them for the required changes in the system
of accounting. The disclosures made by the organization in the past financial statements on the
sales and income of the organization (Damodaran, 2010). The directors in the organization had
not shown their concern on the changes which were required and the senior executives maintains
a distance from making involvement in the organization and does not paid their attention on
preparation of financial statements and this invites lot of resignation in the organization.
The directors faced ethical dilemmas in disclosing of a process for making an evaluation in a
periodic manner and disclosure regarding reporting period in the financial statement in
accordance with the process. Ethical dilemma was also faced in making a diversity policy which
includes requirements for the organization in order to manage the diversity in the organization
and also to set the goals that can be measured effectively. One of the ethical dilemma faced b y
the director’s is of internal audit and how this internal audit had to be structured in the
organization. Ineffectiveness in internal audit function leads towards various risks in the
financial statements (Gitman et. al., 2015). Ethical dilemma was also faced at the time of
assessment and review of the performance of the organization and the risk associated with it. The
risk includes internal compliances and various measurements, codes of conduct and compliance
with the laws and regulations. The directors faced ethical dilemmas in order to observe highest
standards in corporate governance practices and in safeguarding integrity in financial statements
reporting. Ethical dilemmas also faced in assessing the financial statements of Dick Smith. An
Ethical dilemma was also faced in management of risk by the directors and in m management

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and addressing of the issues in the organization efficiently and effectively (Australian
Government, 2017). Identification in Sustainability risks and various economic risks was also an
ethical dilemma faced by the directors and senior executives.
5. Conclusion-
From this assignment it can be concluded that Dick Smith Holding was reputed organization and
has a well known brand name in the country Australia. But Woolworths has leaded the
organization towards competitive pressures and thus resulting in failed restructuring of the
business by the Woolworths. Woolworths make divestment in the business of Dick Smith
Holdings and is finally acquired by Anchorage Capital Partners. It can also be analyzed that the
directors and senior executives faced ethical dilemmas in achievements of highest standards of
corporate governance for the business. Dick Smith Holdings should disclose all the respective
responsibilities and roles in the board meetings and the manner in which management will
evaluate the performance which was one of the ethical dilemmas faced by the directors and
senior executives. Anchorage Capital Partners has defended their role in the collapse of the Dick
Smith and claimed that the organization has a sustainable business when it got floated on the
share market for millions of dollars in profit.

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6. References-
Asquith, P., & Weiss, L. A. (2016). Lessons in corporate finance: A case studies approach to
financial tools, financial policies, and valuation. John Wiley & Sons.
Australian Government (2017). Federal Register of Legislation. [Online]. Available at:
Bebchuk, L. A., & Weisbach, M. S. (2010). The state of corporate governance research. The
review of financial studies, 23(3), 939-961.
Berenson, M., Levine, D., Szabat, K. A., & Krehbiel, T. C. (2012). Basic business statistics:
Concepts and applications. UK: Pearson higher education.
Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals of
corporate finance. UK: Pearson Higher Education.
Beyer, A., Cohen, D. A., Lys, T. Z., & Walther, B. R. (2010). The financial reporting
environment: Review of the recent literature. Journal of accounting and economics, 50(2), 296-
343.
Boatright, J. R. (2013). Ethics in finance. UK: John Wiley & Sons.
Damodaran, A. (2010). Applied corporate finance. UK: John Wiley & Sons.
Duchin, R., Ozbas, O., & Sensoy, B. A. (2010). Costly external finance, corporate investment,
and the subprime mortgage credit crisis. Journal of Financial Economics, 97(3), 418-435.
Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate
cash holdings. The Journal of finance, 65(3), 1097-1122.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. UK: Pearson
Higher Education.
Hadlock, C. J., & Pierce, J. R. (2010). New evidence on measuring financial constraints: Moving
beyond the KZ index. The Review of Financial Studies, 23(5), 1909-1940.

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https://www.legislation.gov.au/Details/F2016C00028 (Accessed: 7 September 2017).
Huhtala, M., Feldt, T., Hyvönen, K., & Mauno, S. (2013). Ethical organisational culture as a
context for managers’ personal work goals. Journal of Business Ethics, 114(2), 265-282.
Muniesa, F., & Lenglet, M. (2013). Responsible innovation in finance: directions and
implications. Responsible Innovation: Managing the Responsible Emergence of Science and
Innovation in Society, 185-198.
SMH (2017). Dick Smith's flat ASX debut. [Online]. Available at:
http://www.smh.com.au/business/markets/dick-smiths-flat-asx-debut-20131204-2yq2a.html
(Accessed: 7 September 2017).
Theconversation (2017). How private equity won while other Dick Smith investors got burnt.
[Online]. Available at: https://theconversation.com/how-private-equity-won-while-other-dick-
smith-investors-got-burnt-52805 (Accessed: 7 September 2017).